EUR/USD reaches 7.5-month highs on concerns over the economic impact caused by the partial US government shutdown

The euro rallied to its highest point in 7.5 months against the US dollar on Friday on bets that disruption caused by the US debt-limit debate will dampen economic growth and urge the Federal Reserve Bank to put its intentions to taper stimulus on hold.

EUR/USD touched a session high at 1.3692 at 6:50 GMT, also the pairs highest point since February 1st, after which consolidation followed at 1.3680, gaining 0.03% for the day. Support was likely to be received at October 3rd low, 1.3581, while resistance was to be encountered at February 1st high, 1.3711.

The greenback registered the largest loss in a month against the euro, after Federal Reserve Bank of Dallas President Richard Fisher said that fiscal discord might have undermined the case for slowing the central bank’s asset purchases, which debase the US dollar. “Tapering is looking less and less likely,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. (WBC) in New York, said in a phone interview, cited by Bloomberg. “In the next few months, there’s a window of opportunity for currencies and risk assets to rally across the board against the dollar.”

US President Barack Obama signed into law the measure to fund the government through January 15th 2014, and also extend nations borrowing authority until February 7th, while another round of debates was seen quite probable in the future. This news spurred investors appetite for riskier assets. However, this temporary solution on the fiscal issue does not resolve the underlying budgetary issues, which divide Republicans and Democrats in the United States. The agreement on US debt was reached one day after Fitch Ratings said that it could revise down the US AAA credit rating, because of policymakers inability to lift the 16.7-trillion-USD debt cap in a timely manner. Another hit against the greenback was delivered also yesterday, after Chinese ratings agency Dagong downgraded its outlook over the US credit rating from “A” to “A-”.

Also, on Thursday a weekly report said that the number of people who applied for unemployment assistance in the United States decreased by 15 000 to 358 000 during the week ending on October 12th 2013, as the result was still influenced by delayed processing of data in California. Experts had anticipated that the number of claims will decrease to 335 000 from the revised down 373 000 claims in the preceding week.

A separate report showed that the Philadelphia Fed manufacturing index decreased to a reading of 19.8 in October from 22.3 in September, but however, the index surpassed projections of a value of 15.0. This data came out two days after another report showed that the New York Empire State manufacturing index fell to a value of 1.52 in October, reaching its lowest point in five months, from 6.29 in September.

Meanwhile, the euro was steady against the sterling, as EUR/GBP cross dipped 0.04% on a daily basis to trade at 0.8459 at 7:47 GMT. In addition, EUR/JPY pair was gaining 0.17% to trade at 134.15 at 7:51 GMT.